Sometimes bad things happen in the economic world for example, the Great Depress

Question

Sometimes bad things happen in the economic world for example, the Great Depression or the Great Recession. Should the government get involved when there is market failure? Why does the government get involved when there is a market failure? What results from the government involvement when there is market failure?

Sometimes bad things happen in the economic world for example, the Great Depression or the Great Recession. Should the government get involved when there is market failure? Why does the government get involved when there is a market failure? What results from the government involvement when there is market failure?

Explanation / Answer

Ans

Yes Govt should get involved. Even the best champion of free private sector Alan Greenspan had to agree that Govt involvement was necessary after financial crisis of 2006

Govt gets involved because it sees intervention inevitable. It thinks private sector cant be entrusted alone to work in the best interests of economy. It enters because it thinks there is no alternative.

It corrects market failure E. G by purchasing securities, bailout, cheap monetary policy etc it reduced harmful effects of financial crisis. But too much involvement like in soviet union proves to be fatal.

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